The Digital Dilemma - Why the Digital Transformation is Failing

Why digital transformation fails and what you can do about it

For years, companies around the globe have been discussing the best ways to implement digital transformations successfully. Faced with the unprecedented unpredictability of the last few years and a precarious economic situation looming,? there is even more pressure than ever before for companies to solve the digital dilemma– a situation that arises when companies lack the necessary technology, structure and manpower for digital transformation to move forward, leading to the stagnation of innovation.

While most companies are aware of the pressing need to master digital transformation, as it helps attract the top talent, provide the necessary tools to out-perform the competition, and increase growth in terms of size and revenue, few corporations have managed to achieve consistent digital innovation. Even with considerable investment, most businesses have fallen short, being replaced by those who have gotten it right. The beautiful digital future they desire seems to always be just out of arm’s reach. It’s not surprising: to be successful, digital transformations must unite employees, technology, partners, products and customers into a single, data-driven entity. With so many spinning plates, it’s easy to understand the myriad of ways things can and do go wrong.

In a recent study conducted by Roland Berger N3XT (the Roland Berger Digital Platform) “The Digital Dilemma | Why do companies struggle to master digital transformation” –? 50 Board-level executives from a range of industries were asked about their experience implementing digitization in their own companies. I found the content so valuable, that I wanted to share the key takeaways with you. It shed some valuable light on a topic often overlooked– if we all know digitalization is so important, why is it failing so badly?

Why does the Digital Dilemma exist?

While technological limitations evidently play a role in the digital dilemma (70% of respondents believe their company lacks the necessary technological skills to drive digital transformation), the problem rests largely with companies' organisational and strategic limitations. Top management often lacks the knowledge needed to understand exactly what needs to be changed in order to create their ideal digital future, and furthermore fail to set up the right processes or allocate the right people to implement these changes. Although 70% of survey respondents indicated their company had achieved some kind of strategic alignment, the business remained at odds, with internal stakeholders fighting for resources rather than building a better business and focusing on the customer.

While many corporations come up with various digital initiatives, most never make it off the ground, and if they do, they are difficult to scale up due to existing legacy systems or a lack of necessary manpower. In order to succeed, IT departments must be equipped– through added resources and trained staff– to keep up with the new demands and receive guidance from upper management– unfortunately, this rarely ever goes according to plan. Oftentimes, these projects lack the internal support necessary to illustrate their true value and the investment needed to have a fighting chance at success. One surveyed executive indicated that his team listed more than 230 potentially valuable digital initiatives, and hadn’t been able to implement one successfully.?

Most respondents agreed that their IT organisation would have to undergo significant changes in order to implement a successful digital transformation. What that means, differs for every corporation– there is no one-size-fits-all solution. What’s important is to balance efficiency and innovation– how can businesses evolve technologically with severe budget constraints, for example? Finding employees with the necessary skill set (and mindset) is another difficulty. With 74% of respondents stating their system landscape is complex, it can be difficult to find employees with the right skills needed to navigate such an environment.?

It’s also important for top management to establish a clear prioritisation of initiatives and their correlated benefits, and communicate these to the rest of the staff– without their vision or staff buy-in, it’s easy to see how things could go haywire. 69% of respondents indicated that failure actually stemmed from employees being unable to collaborate with other departments. When discussing common pitfalls of digital transformation, most companies often overlook these, relatively simple, aspects.?

Digital disruption isn’t going anywhere

With unforeseen global events and technology evolving at record speeds, companies must accept that digital disruption is here to stay. Digital disruption will happen– and it will happen without you– if you don't start getting it right. Successful digital transformations are a key factor in being prepared for the constant disruption we are all experiencing; it’s clear that if companies choose not to evolve, they will be left behind by those succeeding. Digital disruption is affecting four areas in particular: revenue (companies will use customer behavioural data to offer personalised recommendations, thus increasing revenue), efficiency (new software and automation will allow for operations to become more scalable), leadership (leaders will focus on ensuring agility, as well as attracting and retaining talent), and people focus (a human-centric approach based on customer preferences to foster customer loyalty and employee happiness). Technology is no longer a simple driver of efficiency, but a key element in better understanding customers and the business on a whole.?

Escaping the Digital Dilemma

The future doesn’t have to be grim– it is possible to escape the digital dilemma. There are four building blocks that are important to implement when doing so: a joint business and digital strategy, an efficient operating model, solid people policies, and clean enterprise and data architecture. Through these four elements, companies can regain strategic freedom, while enabling agility and minimising complexity. A joint business and digital strategy ensures that initiatives are set up by both senior business executives and IT teams, and shared across the organisation for better adoption. An efficient operating model means aligning business, IT and digital processes while embracing a reliable change management system. Next, strong people policies involve creating a Human Intelligence (HI) map which outlines current and future hiring needs, the supply of such skill sets, and staff retention practices. Finally, lean enterprise and data architecture entails keeping complexity to a minimum, as it impedes agility.

Recommendations

With competition only intensifying, escaping the digital dilemma is becoming a top priority for companies globally, across all industries. The time of waiting to see what happens has come and gone– companies wishing to flourish in the digital era must act now. It’s essential to understand that digital transformation is not a one-and-done project, but something that takes continuous effort and dedication to bring about the consistent change necessary. There are five key steps that can help companies on their digital transformation journeys.

1) The first is being transparent and honest about your current digital capabilities– what are your existing strengths and weaknesses?

2) Step two involves developing a long-term strategy with a clear company direction and purpose. After understanding your limitations outlined in step one, you will be able to create a plan focusing on the areas needing further development. It is important for the? outline to connect your business strategy and IT and digital capabilities in one cohesive plan.

3) Moving onto step three, divide your strategic plan into a series of manageable steps with clear KPIs, so that employees can get the ball rolling with ease and track their progress. If you’re able to successfully implement small projects, your company, and its staff, will build the necessary confidence to implement larger ones.With new technology constantly being developed and changing internal demands, it’s likely that your strategy will have to be adapted continuously– ensure there is enough flexibility across all departments to allow for this.

4) As part of step four, make sure you establish a task force with strong managers to lead these projects. Finding those with the necessary interdisciplinary skills can be challenging– the right person may be working on another project and need to be re-assigned, or you may have to search externally or train existing staff members to fit the needed profiles.

5) Step five involves remembering that even though you are implementing a digital transformation, it requires human transformation in the process. Top management must make a strong (public) commitment to implement the necessary changes, while middle managers must show the rest of the employees that they are also on board. It is the people behind a company, who are really able to drive change forward.

Companies that have been able to successfully escape the digital dilemma generally implemented a strong change management system, with established KPIs and feedback loops. What’s clear is that the support from internal leaders was vital in the success of the program– without proper collaboration, all initiatives will eventually fail. While digital transformations are in no way easy, they can be done successfully with the right elements in place. Digital disruption is happening– there is no getting around it– companies can either choose to embrace it or fall by the wayside, as competitors who are more digitally savvy take over. What’s important to remember is that regardless of how “digital” our world becomes, we mustn't overlook the key role humans continue to play– for it is only because of humans that digitalization becomes valuable in the first place.

Source: “The digital dilemma | Why companies struggle to master digital transformation.” Roland Berger GmbH - Roland Berger N3XT